Prices for health care services have to be set democratically, not by the market

[HamdenRice]

This is in response to a number of posts today about health care costs and the costs of professional health care services. I just wanted to throw out some reasons, from standard economic theory, why health care has to be priced through our political system and not in a market system.

Some of the responses to various posts complaining about health care costs show that, as the cliche says, "a little (economic) knowledge is a dangerous thing." A lot of DUers seem to believe that limiting wages for health professionals or limiting health care costs is some sort of violation of the market.

The problem is that there isn't really a market for health care professional wages, and in the absence of a functioning market, the government will basically have to step in a set prices and wages.

There are many reasons that there can be no functioning market for health professional wages or services, but I can think of two off the top of my head: (1) demand for many health services is (or should be) completely inelastic, and (2) there are more "agency" problems in health care than in almost any other industry.

As for (1), consider an appendectomy. This is now a safe, easy, low cost (note: not low price) operation. If you get appendicitis and don't get the operation, you die. Some people have analogized health care to other purchases, like mechanical work on a car. But you can't accurately look at health care that way because the demand for other services, like the demands for car mechanics, is elastic -- meaning people can choose to buy it or not buy it depending on price.

But you can't choose not to have an appendectomy -- or for that matter, many other health care interventions. The demand is inelastic -- although sadly, as our system became completely market driven, people have indeed stopped purchasing needed health care.

Let's say the cost of an appendectomy (to the hospital) is $2,000. When the operation is "sold" in a market, the question is, what is the patient willing to pay for it -- what is its price? What is the value to the patient in terms of future wages, and life itself -- or in economic terms, what is the utility of an appendectomy?

The utility of an appendectomy is a monetary value that is as high as all the patient's entire life's wages, savings, property -- and even more because he prizes life above all other values.

So, in a market setting, the price will be somewhere between the cost and the utility of the operation -- which is to say, the price could be up to millions of dollars for something that "costs" $2,000. And sadly, many profit making companies in the health care sector (and other similar sectors, including education), have been convincing themselves to price things in terms of their maximum utility, not their cost. Universities, for example, have convinced themselves that they are entitled to be paid a price for a college education that is equal to the value of all future wages of the student attributable to the education. So the student borrows years and years worth of future earnings to pay the university for an education that could be had for a much lower cost.

Therefore, the price of an appendectomy simply cannot be set by market forces. It has to be determined politically, like the price of a utility company's services, in terms of its cost and a reasonable return to the health care provider.

As for (2), agency problems occur in economic theory whenever one person or party has to do something through another person (the agent). In health care, the patient is the customer or buyer. But all his decisions are made by agents: the doctor determines what care is needed because of his specialized knowledge, the insurance company pays his bills -- and it gets even worse in emergencies and operations, when agents make extremely expensive decisions on behalf of the unconscious "customer." What do you think your grocery store bill would look like, and what do you think would be the mix of your groceries, if you handed off some percentage of your wages to an agent and told him to go to the supermarket and work together with the supermarket owner to decide what groceries to purchase and how much to pay for them, without any input from you? There can be no functioning market system when agents make all the important decisions for the consumer.

Again, for this reason, prices have to be set before the customer is even a customer -- namely collectively through political processes.

There can be no functioning market system in health care services or professional health care wages any more than there can be a market in the services of firemen in the middle of fighting a fire.

[jody]

1. Why target health care, let a simple majority set prices on all products and services. n/t

[Donnachaidh]

3. and who becomes that majority?

Is it done by vote, or by a group of people who might stand to gain from setting prices?

[jody]

7. Ask the OP author HamdenRice. n/t

[Donnachaidh]

13. but you were the one who brought up the point. n/t

[jody]

18. Read the OP which proposed prices for health care be set set democratically In common usage that

means a simple majority.

[HamdenRice]

21. Democratically does not mean "simple majority."

It means set by democratic institutions. So, for example, we faced a similar problem with utilities, which had natural monopolies. We created democratic institutions, called utility regulatory commissions, that combined democratic processes and procedures with economic expertise and independence from "pure" democratic demands. This is not a hard political institution to craft. We've been doing it for a hundred years.

Democracy is not synonymous with "the mob."

[jody]

25. If democracy does not mean making decisions by simple majority of voters or their representatives.

then what do you think democracy means?

[HamdenRice]

28. Asked and answered already nt

[jody]

32. Then your definition of democracy is allowing a central government to make such decisions. Russia

tried that and it failed.

[HamdenRice]

34. And the US tried it and succeeded. nt

[jody]

36. If the US succeeded, then why have Dem/Rep presidents and congress privatized so many

government functions?

[HamdenRice]

43. To disastrous effect. That's the whole point. We need "deprivatization" of many functions nt

[jody]

49. OK then you are proposing socialism for health-care and I again ask why not the complete economy? nt

[HamdenRice]

54. I again ask why not read the OP

It's about "market failure" -- a concept that is universal in both liberal, conservative and libertarian economic theory.

If you don't know what it is, you won't be able to understand the OP.

Can you show that there is a functioning market in health care that overcomes consumer choice and agency issues?

Can you show market failure in every sector of the economy?

Please do so here. Really. Go ahead and show why there is not market failure as described in the OP.

[jody]

57. I read the OP and every question I posted was to try to understand your proposal. n/t

[Uncle Joe]

60. Because the narrow interests of the wealthy, powerful oligarchs and mega-corporations

have greased the palms of and monopolized the ears and eyes of those Dem/Rep Presidents and Congresses, combined with their virtual control of all traditional one way corporate owned media spreading their propaganda, thereby dumbing down the American People as to the publics more logical alternatives.

The corporate media's promoting of the superficial coupled with their underlying message of "greed is good," aka: the Ferengi approach to governance.

[jody]

63. Agree re corporate control of our government. Perhaps We the People should first reclaim our

government and then use our authority and power to change programs like health-care and education.

[Uncle Joe]

68. I believe, the Internet is playing an increasingly critical role to that effect

steering the nation away from the extreme right side of the ditch.

It started in 2006, but momentum must be maintained because we still have a long way to go.

The people's unfiltered voices are gaining strength, but I believe we can walk and chew gum at the same time and as the people regain power over their "we the people's" government," we must also fight for medical and educational reform. In this regard the central premise of the O.P.'s post makes logical sense to me.

[jody]

69. I for one, would like to see 435 new faces in the House in 2010. What will make voters mad enough

to revolt at the ballot box and reclaim our government starting with the House of Representatives?

[Uncle Joe]

71. I would as well, but I see it in the long term, the myth of the so called

"liberal media" didn't take hold overnight. That long held fable will take time with some people to erode.

I believe one of the corporate media's neglected issues in terms of coverage in regards to the real estate collapse has been the adverse effects caused from the exploding cost of heath care and insurance.

I do believe in regards to health care we're reaching a political tipping point as the first of the baby boomers are in their early 60s now. I also believe when that tsunami hits, there will be major backlash against any one in the Congress blocking serious reform. I also believe to some extent the Internet will serve to keep that reform honest. The current health care system is broken, and I suspect this issue will take hold with surprising speed.

[drm604]

33. You seem to be the only one here who doesn't understand what he means.

As far as I can see it's obvious to everyone else. You're simply arguing semantics, which adds nothing to the conversation.

[jody]

38. OP suggested setting health care prices by a government organization without one iota of proof that

such a scheme would provide better health care, when needed by a patient, at lower prices than currently available in our present system.

[drm604]

42. How many iotas do you have to show otherwise?

There is certainly plenty of evidence from places like Canada that single payer, for example, is a reasonable and workable system which provides equal or better care at lower per capita costs.

[jody]

46. Suggest you study the problems with National Institute for Health and Clinical Excellence in the UK.

[drm604]

48. I cited Canada, not the UK. n/t

[jody]

50. And I offered NICE and its experience dealing with health care and denying services. n/t

[drm604]

55. In return I can offer the U.S. health insurance companies...

and their experience in dealing with health care and denying services.

For the record, I'm an advocate of a single payer system similar to Canada's and not a totally government run system like in Great Britain.

[jody]

58. OK but the OP proposed a system run by government, apparently not unlike what UK has. The experience

of UK citizens with NICE seems relevant to me.

[drm604]

4. Because the market more or less works for most commodities and services.

Health care is one of the exceptions.

[jody]

9. How does health care not respond to competition? n/t

[drm604]

15. The OP explained this.

If you need an emergency appendectomy, for example, you don't have the time, or even the ability, to shop around.

If you're unconscious after an auto accident, you have absolutely no say and competition doesn't enter into it.

I'm sure that you could think of numerous other examples.

[jody]

20. Health care cited in the OP is more than a few special cases like emergency appendectomy. n/t

[drm604]

26. We can't just ignore those cases, and they aren't just "a few".

Cases like that are a lot more numerous than "a few". They're very common and they're in no way special. I'm frankly puzzled that you could think otherwise.

[jody]

29. The OP proposed a price system for "health care" not just a few special cases. n/t

[drm604]

45. Please reread my post that you responded to.

Those cases are neither few nor special. On the contrary, they are numerous and common.

[jody]

52. OP said "health care" without exception. If you wish to discuss a special class of health care

that's a different topic.

[drm604]

64. I give up.

:rofl:

[jody]

65. That's the first wise post you've made. n/t

[drm604]

66. ...

:rofl:

[HamdenRice]

31. Consider even something like blood pressure medication

I agree with you. They are cheap as dirt, in terms of cost, but life saving. It's amazing how much medical intervention these days is cheap in cost but has a utility that is virtually infinite to the consumer.

For the last 8 years, the idea has been to soak us for all its utility.

[HamdenRice]

5. Because demand for other services is elastic and there are no agency problems

The entire point was that I can choose to buy or not buy most things. I can't choose to buy or not buy an appendectomy.

[jody]

10. Do you really mean demand for all health care is inelastic? n/t

[drm604]

47. Would you be happier if he said "most" or "nearly all"? Because that's clearly what he meant.

Does he really need to qualify every statement? Can't you look at context?

[jody]

53. The author said demand for health care is not elastic. Why don't you ask the author what is meant?

[Warpy]

17. You missed the essential point.

Health care is not a choice. You don't sit and call around to find out which hospital does cut rate angioplasty when you're sitting there with chest pain unless you want to be long dead by the time you'd get an answer.

You don't choose when to catch a bad cold or when your appendix tries to kill you. You don't choose heart disease or cancer, your genes do and they won't warn you it's about to hit. You don't choose any of it.

Bottom line: ILLNESS IS NOT A CONSUMER DECISION. Trying to force it into a consumer marketplace is sheer insanity.

[jody]

22. Health care is always a choice, that's what living wills and similar documents are for. n/t

[Warpy]

24. You're still missing the point

probably because it doesn't fit into your ideology.

Illness is not a choice. Choosing to die because you can't afford to pay jacked up "fair market" prices to cure it isn't really a rational choice.

But you won't get it until it happens to you and you can no longer pretend your ideology works.

[jody]

27. Sorry but the OP used "health care" and that includes such things as cosmetic surgery. n/t

[drm604]

35. Are you being deliberately obtuse?

Seriously, no one here, except you, thought that he was including cosmetic surgery. When you read these posts, try to look at the context.

[HamdenRice]

37. Can I use the T-word yet? nt

[jody]

41. Is that the best you can do? ROFLMAO n/t

[jody]

39. OP said "health care". I did not speculate on "what if" that seems to attract you. n/t

[drm604]

51. No. What attracts me is looking at the context and putting some effort into intellectual honesty.

What seems to attract you is interpreting things in the most restrictive and literal way possible so that it fits your argument. At least it seems that way to me.

[jody]

56. OP suggested a national policy for setting prices for "health care" by a government

group.

If that proposal has merit, it should be able to stand on its own without more qualifications and special cases.

[drm604]

59. It should be allowed to stand as it was intended.

Not as you're trying to misinterpret it. You're being way too literal.

[jody]

61. "You're being way too literal" or I am just pointing out flaws with the OP proposal. n/t

[Warpy]

70. You're still missing the point

ILLNESS is not a consumer decision.

Having a big nose or saggy skin is not illness.

You're batting 0.

But you won't admit that, ever. You might have to change an opinion.

[jody]

73. Did you bother to read the OP re "health care services"? If you did, then why persist in arguing

special cases?

[gravity]

40. Health care does involve choices

excluding the life threatening and critical procedures.

If you catch a cold, you can choose your treatment options of going to the doctors or just taking OTC cold medicine. Many illnesses have a range of treatments with different risks and costs associated with them, which patients have to choose.

If there was a single payer health care system, the government would be making these choices for you. They might decide that a certain procedure's benefits aren't worth the costs and the money can be used somewhere else. That is part of the reason why the health care costs in other countries is lower. They know how to make the choices to allocate its resources more efficiently.

[Warpy]

72. Single payer doesn't choose when you can see a doc

Single payer doesn't choose the doc you can see.

Single payer doesn't choose the OTC medicine you can take.

Single payer doesn't choose much of anything. The doctor does. Single payer is insurance that pays the bills for treatment.

Until we can choose when to get sick and what to get sick with, health care doesn't belong in the private sector.

In the meantime, I'd suggest you stop mouthing insurance company propaganda and do some real research on what health care in countries with single payer insurance is really like.

[raccoon]

76. This one's a keeper: "ILLNESS IS NOT A CONSUMER DECISION. " nt

[drm604]

2. K&R

Very well put. This needs to be rec'd to the top.

[Cleita]

6. Health care should not be traded on the open market like gold.

It's not a commodity but a necessity. Excellent post. Thanks

[scisyhp1]

8. There should be no "prices" for health care services at all,

either set by the market or by the government. Such services should be
free of charge for everyone, and their providers should be government employees
on a fixed salary. It is time to remove any notion of market and profit
from healthcare. It is hard to comprehend how much money could be saved
by doing that.

[HamdenRice]

11. But costs are inevitable, because nurses and doctors have to be paid

but I think we agree somewhat because I'm proposing a "cost plus" model, not a price model, for health care financing.

Even government employees wages have to be paid for.

[Donnachaidh]

14. After watching Sicko, and seeing how well the Brit Doctors were doing

I don't see WHY we cannot have the same in this country. They seem to be handling the costs well enough, and no one suffers needlessly.

[leftstreet]

12. Absolutely!

:thumbsup:

I despair that people will ever be able to think in non-capitalist terms.

[TahitiNut]

16. Silly. Folks with appendicitis should shop around for the best price. Ain't it obvious?

:silly:

[HamdenRice]

23. You OWE ME a friggin keyboard!!!

Coffee spilled all over it -- coming out my nose, no less!

:hi:

[gravity]

19. If you want price controls, the government has to foot some of the bill

or else there will be market failures. It is welfare economics 101.

A better method would be to subsidize the procedures instead of setting prices.

[Ikonoklast]

30. Remove the profit motive from health care.

Not a perfect answer, but solves the biggest problem.

But profiting off the misery of others is the American Way.

[Uncle Joe]

44. Not to mention the ripple effect of value and cost.

"The utility of an appendectomy is a monetary value that is as high as all the patient's entire life's wages, savings, property -- and even more because he prizes life above all other values."

If the patient has dependents relying on their income and they succumb, their children/elderly parents are more likely to quickly become wards of the state.


Excellent analysis, HamdenRice:thumbsup:

Thanks for the thread.

[Froward69]

62. appendectomy... I had one Just last summer

the cost to me was $28,000. Of course that was at a hospital further away from my house I knew to be less expensive than the one near my house. the Hospital nearer to my house??? upwards of $50,000 same procedure same Doctors, Nurses and anesthesiologists.

so as i tell the collection agents...
"Yes, I am grateful"
"No, I cannot afford to make payment at this time"
"yes I intend to pay this Bill as soon as possible."
"no I will not sell my apartment building to pay this bill."
"please stop trying to intimidate me... I really do not think you will sneak over late at night and sew my burst appendix back in."
"Yes, I realize you weren't threatening me."
"yes I am grateful..."

and on and on it goes.

:hurts: :nopity: :hurts:

[HamdenRice]

67. That's awful -- but that's basically what I'm talking about

It is one of the most routine and cost effective operations in existence. You shouldn't be subject to bill collectors as a result.

I'm sure that at the time, you didn't feel that your "demand" for the operation was "elastic" as someone in this thread seems to believe.

[Froward69]

74. oh yeah!!!

laying on the couch waiting for the pain to pass was not an option. once I knew i had to go in i went. I did not research where to go I just knew. I went to the "public" hospital. not the "private" Hospital close to the house.

I also knew i had no Insurance. and only limited savings. thus the first round of bills I paid. after that it seems like I defaulted on my student loans again. now I am one to have fun with the collection agencies. so it is not that bad (emotionally) for me as it would be for others.

but It does burn me to no end as
1)how expensive my medications were. when I know in Europe they cost less than a 10th of what they cost here (made here shipped there BTW)
2) the actual cost of the operation was less then $2000 the rest is profit.
3) the Hospital is great. so is the internist. But the anesthesiologist is a NAZI. he is the one threatening me with a forced sale of my chief source of income. I know he is full of shit. and cannot do anything of the sort. so I have a great time pushing his blood pressure to the limit when he calls.
4) and last of all a friend had the same thing happen to him. (yet he had insurance) the bills from the same Hospital Docs and drugge. to the Insurance company... were 2/3 of what my bills were.

My sister-in-law is a nurse (across town) she says wealthy people just swipe the American express card in the emergency room.

health care in this country is so screwed up...

[OneBlueSky]

75. the profit motive must be taken out of the healthcare system . . .

for any real progress to be made . . . as long an the bottom line is the corporate bottom line, nothing of substance is ever going to change . . .

if we can get rid of the HMOs and the insurance and pharmaceutical corporations that are all skimming billions off the top of our healthcare dollar, then we might actually make some progress . . . my read on Obama is that he's not there yet -- but he will get there as reality begins to sink in . . .

because the reality is that for-profit healthcare will always be about profits rather than about healthcare . . . it's written into the corporate charters and into the laws that govern corporations . . . corporate executives have a fiduciary responsibility to their companies to maximize profits, and that's what they must do in order to keep their obs . . .